The company to watch: Lonza, the Swiss army knife of the pharmaceutical industry

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When we talk about the pharmaceutical industry, we think of Roche, Sanofi, Teva or more recently Moderna. But these laboratories rely on a network of third-party companies for a certain number of operations that they cannot or do not want to carry out internally. Valais Lonza is one of them. It is even the main manufacturer of the pharmaceutical world. Toll manufacturing is producing to order for someone else. The term is more elegant than its Anglo-Saxon equivalent, CDMO, literally "contract development and manufacturing organization".

For years, Lonza kept a foothold in specialty chemicals, before choosing to focus on the most lucrative part of the industry, healthcare. The group is now divided into four complementary entities: biological products (50% of revenues), small molecules (14%), cell and gene therapies (11%) and finally capsules and health ingredients (22%). The gross operating surplus margin (Ebitda) is between 30 and 40% for all divisions, except for cell and gene therapies, which fluctuate between 15 and 20%. Just over 60% of revenues are generated by large global laboratories, which gives the group a comfortable footing. The geographical distribution of activity is fairly balanced between North America (47%) and Europe (40%), the balance coming from Asia Pacific (13%).

Lonza operates in a sector with high barriers to entry. The healthcare industry is subject to extremely strict rules with high standards. The contractors must be both innovative and rigorous in their management because the start-up of projects is costly. What's more, the relationship of trust and know-how are considerable, if not essential, assets. If we put all this end to end, it is easy to understand that the economic model allows significant margins and that there is a considerable premium in favor of the players in place. This explains why Lonza is everywhere, with more than a thousand projects in progress, from the most classic to the most complex. It is, for example, the subcontractor who had been chosen by Moderna to urgently produce the active ingredient of the vaccine against Covid-19, with unprecedented volume challenges.

At the economic level, Lonza has thus become a one-stop shop for the biotechnology and pharmaceutical industry, to steal the formula from a good connoisseur of the sector. In the stock market, it is a means of investing on the theme of biotechnology without bearing the binary risk generally associated with clinical development. Its current capitalization of 35 billion Swiss francs makes it one of the ten largest companies in the Confederation, for a turnover which should exceed 6.2 billion Swiss francs this year. As for margins, they are high and constantly increasing, especially since its more traditional chemicals activities were sold to the Cinven and Bain Capital funds in 2021. An operation which moreover completely erased the debt.

Leader in a health sector with high barriers to entry, well diversified, essential and present on underlying trends... Any somewhat enlightened investor expects a hefty bill. No miracle, it is the case: at more than 30 times the results expected this year, the Swiss company is at the top of the sector basket. However, it is quite a unique asset and its growth trajectory is solid. What's more, the stock has lost 40% since the start of the year, which has erased the excesses of the second half of 2021. This is a credible candidate for those looking for a long-term position with robust fundamentals. .